Sorting out the impact of cultural diversity on
innovative firms: An empirical analysis of Dutch
micro-data*
Ceren Ozgen1,2, and Thomas de Graaff1
1Department
2
IZA, Bonn
of Spatial Economics, VU University Amsterdam, The Netherlands
Abstract
We analyse the impact of cultural diversity on firm innovativeness by using a
latent class approach to control for observed and unobserved heterogeneity.
Recent availability of micro-data has enabled us to construct a unique linked
employee-employer dataset of about 11000 firms through merging datasets on
both workers and firms. We explore the possible ways of firm-level knowledge
exchange among the employees with different cultural backgrounds, proxied by
country of origin, and its impact on firms’ product and process innovations. For a
subset of firms, we also identify the determinants of patent applications and
other intellectual properties the firms acquired. We show that traditional
regression models do not adequately tackle with the underlying sample
heterogeneity and parameter estimates may vary across different group of firms.
We find that workforce diversity is beneficial for innovativeness in capitalintensive sectors. It also positively impacts large firms that operate in high- level
services, manufacturing, mining and R&D sectors, which are predominantly
located in the non-urban areas in the Netherlands. In labour and land intensive
sectors, the impact of cultural diversity on innovativeness is inconclusive.
Keywords: Cultural diversity, innovativeness, (un)observed heterogeneity, finite
mixture modeling
JEL-classification: J15, J21, 031
*Corresponding author: Ceren Ozgen, email:[email protected].
This research is part of the Migrant Diversity and Regional Disparity in Europe
(MIDI-REDIE) project, funded by the NORFACE research program Migration in
Europe—Social, Economic, Cultural and Policy Dynamics. We thank Daniel
Arribas-Bel, Raymond Florax, Henri L.F. de Groot, Maureen Lankhuizen, Max
Nathan, Peter Nijkamp, Jacques Poot, Michael Wyrwich; participants of the
‘Eureka’ Seminar at VU University Amsterdam; ‘Workforce Heterogeneity and its
Impact’ Conference at IAB Nürnberg, and the 53rd European Regional Science
Association Congress in Palermo for helpful comments and suggestions.